Is sweet carrot approach failing to bring companies of real sector into share market? “Time for long stick approach now”, Experts say

It has been some time now that Securities Board of Nepal (SEBON) legally opened the way for companies in real sector to enter the stock market of Nepal. However, barring handful number of companies, remaining institutions representing the real sector which has long been touted as productive sector haven’t shown even a bit of enthusiasm to issue shares to the public.

To provide incentive to the companies from real sector to enter the stock market, SEBON has already introduced Securities Registration and Issuance Regulation 2073 which has shown relative flexibility towards the real sector institutions by allowing them to issue minimum 10% to maximum 49% of their equity shares to general public. Apart from this, the board has also put forward Securities Issuance and Allotment Guidelines 2074 that has allowed the companies to issue IPO shares by adding premium to the price with an aim to promote the already established companies to go public. Few cement industries such as Sibam Cement has already begun the process for the same while a big chunk still remains uninterested.

The erstwhile government with Bishnu Paudel as Finance Minister had even tried to promote the companies in real sector to reach out to the general public investors via their equity shares as Mr. Paudel had decided to give tax exemption to those firms who go public through his budget. Apart from tax incentives, all the regulatory bodies are even positive towards the demands of the already established institutions who had claimed that issuing the shares in par value of Rs 100 doesn’t match the worth of their companies.

After a long pursuit via a sweet carrot approach which didn’t bare much fruit, SEBON officials now believe that the government and other regulatory bodies must take a strong stick approach now. The officials are of belief that the government through its fiscal budget should make it mandatory for all the firms with the paid up capital of minimum Rs 1 arba to issue minimum 10% of their shares to general public. The initiative can be later followed on by making mandatory for all the firms with minimum capital of Rs 50 crore to go public in the subsequent budgets which will ultimately leave the firms with no choice but to go public thereby reducing the influence of banks and financial institutions (BFIs) which currently have a combined stake of more than 80% in the secondary market.

The industry observers have also aired their view time and again that necessary reforms and corrective measures have to be brought into Nepal Stock Exchange in order to make the only stock market of the nation professional and upto the mark with modern technology. If NEPSE which has long maintained its monotony in the market doesn’t show signs of timely upgradation, then there must not be a delay to introduce a competitive and competent stock exchange in the country, as per the experts.